Pointing for a Record

A brief case of jitters shook some of the Stardust out of the stock market last week but failed to halt the long upswing of the past four months. The main cause of concern: a rise in short-term interest rates, which signaled an apparent mild switch in the Federal Reserve Board's easy-money policy. Now, to stem the flow of dollars abroad, the board has decided to let short-term rates edge up.

Though a rate rise had been anticipated, the news moved many investors to sell. On the first day of trading last week, the Dow Jones industrial average plunged eleven points, to 929. But the Dow picked up in subsequent sessions and closed the week at 943. A major stabilizing factor: the belief that the Federal Reserve will not revert to a restrictive money policy and risk stalling the business recovery in a presidential election year. Most Wall Street professionals are optimistic and are all but certain that the Dow will pierce the magical 1,000 level before long.

Dawdling Dow. The market is even more vigorous than the Dow Jones average of 30 big, old industrial stocks suggests. The Dow is the market's best-watched barometer, but it is lagging well behind more representative, broader-based gauges. Standard & Poor's index of 425 industrial stocks hit a new all-time high four weeks ago. Last month the industrial component of the New York Stock Exchange's 1,047-issue index also reached a record. Yet the Dow dawdles 52 points behind its record closing of 995 posted in February 1966.

Dogging the Dow's progress are the limp performances of quite a few of its stocks, including Anaconda, United Aircraft, U.S. Steel and International Harvester. Profits of many of the big firms have been vitiated by recession, expropriation of their property abroad and muscular foreign competition. Because their size makes them so visible and the impact of their actions is so widespread, the prices that large firms charge are more tightly controlled than those of smaller companies.

Buoyant Profits. There is good reason for optimism. The economy, though not booming, is forging steadily ahead. Unemployment, at 5.7%, is much too high, and retail sales remain flaccid; the personal-savings rate for January touched a phenomenal 9.2%, up .5% from the month before. On the other hand, home building continues robust, running at a record annual rate of 2,500,000 starts in January.

Factory orders are up, and inventories are at last slowly rising. Most significant, in what could be the start of a more rapid economic climb, industrial production jumped a sharp .7% in February, bringing the total increase in the past three months to a sturdy 1.8%.

Investors are particularly buoyed by last year's 13% rise in pretax corporate profits and expectations that earnings will increase this year by 15% or so. More than 70 major companies raised their dividends in the past three months, including American Brands, Avon Products, Colgate-Palmolive, Xerox and Federated Department Stores. Brokers are also cheered by evidence that more small investors are trailing back into the market after staying out for several years. Board rooms across the country are again crowded with tape watchers, and margin debt rose by a substantial $480 million in February, to $6.2 billion, indicating that people are confident enough to borrow in order to buy stocks. The rising market is also bringing back foreign investors, notably Swiss bankers, who are pouring money into U.S. stocks.

Cyclical stocks that rise and fall with the economy should do well. This includes shares in autos, photographic equipment, building developers, leisure products, hotels, airlines, machine tools, appliances and office equipment. Such blue chips as steel, chemicals and railroads should also climb, in part because many are overly depressed. Other probable winners are CATV, brokerage-house and bank stocks. Likely to be among the poorest performers in the next few months: international oil companies, which are being forced to pay to host countries more and more of their earnings; public utilities, which find it difficult to raise their rates; and copper and aluminum, which face market gluts. Short of a major crisis, however, the stock market seems well on its way to a very good year.

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